Post-mortem of a recession: What has changed?

October 22, 2012

MISSISSAUGA, Ont. -- Many shippers and carriers have emerged from the Great Recession leaner and more efficient than ever before, but the economic catastrophe has left a permanent mark on the transport industry.

October 22, 2012
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MISSISSAUGA, Ont. — Many shippers and carriers have emerged from the Great Recession leaner and more efficient than ever before, but the economic catastrophe has left a permanent mark on the transport industry.

Carrier and shipper executives who came together at the 2012 Surface Transportation Summit agreed that the difficult economic times of 2008-2010 forced them to make some tough decisions and to dig deep for improved efficiencies.

Michael Tan, divisional vice-president, supply chain and transportation with Hudson’s Bay Company, said his company called upon procurement consultants, enhanced its negotiation skills, tightened up details in certain contract terms and re-examined the modes it was employing.

“It forced us to explore ways to maximize sales as well, to segment our business and departments within our business and revamp the transportation strategy for each,” Tan said. “Moving fashion for The Bay was different than moving home products.”

Also speaking of the shipper experience was Brian Springer, vice-president, transportation with Loblaw Companies.

“It forced us to focus on our transport costs in a more in-depth way,” he said. “We were a decentralized business. The downside to that is you have regional cost centres that are accountable to their own P&Ls, so you don’t look at the greater good. One of the things we had to do is become more centralized in our business. We had to look internally in terms of how we were structured, in terms of our own fleet versus 3PLs, did we have the right balance? Even within our own fleet, did we have the right gear and were we spec’ed right? Did we have the right labour models in place? Do we really collaborate with 3PLs and carriers as well as we should?”

During these soul-searching exercises, Springer said it also became clear Loblaw wasn’t as organized as it should be. It used different technology platforms to track inbound and outbound freight, which “really never portrayed a real accurate profile of what our network looked like, so we never gave carriers the full picture,” Springer admitted. “One thing we had to do was completely revamp our technology platform, so now we have one platform across the system and that helps us explain to a carrier what we need from them.”

As a result, Springer said Loblaw can now provide its carrier partners with six-month, six-week, six-day and 24-hour forecasts, rather than catching them bys surprise the night before the shipments need to be delivered.

On the carrier side, Wes Armour, CEO of Armour Transport, said he had the foresight to pay off the company’s debt before the recession kicked in, which put the company in an enviable position once the economy tanked.

“One of the advantages of owning my own company was I was able to put the profits back into the company,” Armour said. “We had no debt, our equipment and buildings were paid for. I made the decision it was better to invest my money into my own company that I had control over rather than the stock markets.”

This allowed Armour to retain most of its driving force as well as its support staff and executives and to offer small pay increases throughout the recession. Still, the company had to look for cost reductions wherever possible and Armour said: “This has made us a better carrier. We thought we had all our costs under control, but what we found when we started looking is there were better ways to do things.”

Armour retained most of its customers through the downturn, but was affected by paper mill closures and the fact its customers were shipping smaller loads.

“We certainly saw less volumes during this period of time,” Armour said. “It wasn’t less customers, all it really meant was shipments were much smaller. Instead of having a 1,000-lb shipment every week from a customer, we ended up with a 600-lb shipment. We still had the same number of stops, the same amount of traffic, except the truck was generating a lot less revenue because the shipment was smaller. That is coming back slowly, but it took us a while to figure out why we weren’t getting the same revenue.”

The permanent closure of most paper mills in Eastern Canada will force fleets serving the region to re-evaluate their routes, Armour said.

“Some of these mills shipped 550 metric tonnes a day to the US, Ontario and Quebec,” he said. “It creates a huge imbalance coming eastbound versus westbound and southbound that hasn’t been able to fix itself and never will. That was a huge volume for our industry for years (which allowed us) to reposition trucks back in and move LTL back in the opposite direction.”

For Challenger Motor Freight, the key to surviving was to diversify into new markets. Dan Einwechter, Challenger CEO, said his company focused on new opportunities such as heavy-haul and the emerging wind energy market. This was crucial, since cross-border freight dried up and fleets that traditionally ran north-south turned their attention to running east-west, where Challenger had traditionally been focused.

“It was interesting to watch carriers race to the bottom on rates at times with no rationale,” Einwechter recalled. “When there’s less volume, you’d think rates should go up so you have more profit on each load to cover off your expenses, but it just goes the other way. Rates that were $800 became $650 became $600.” Even with the industry slowly recovering, Armour said certain changes are likely here for good. One such observation is that many shippers trimmed staff during the downturn and are now counting on their carriers to fill that void.

“Nobody seems to mention this, but in our experience, what seems to have happened with our customers – and I assume this – is that they have lost a lot of people through the recession because in order to stay competitive, they had to let people go,” Armour said. “Now, what our customers (traditionally) did, we as carriers are looking after now. That has changed the whole focus. When they are looking for value, I’m not sure they realize how much a carrier does now. The customer doesn’t have the horsepower to do a lot of these things they used to do. In fact, in many cases it’s hard to get a phone call back when we have an issue that is probably their issue.”

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